U.S. starts making bombshell NAFTA proposals as Trudeau visits Mexico for negotiations

The NAFTA talks have now entered their most difficult phase with the United States beginning to drop its bombshell proposals on the negotiating table at a just-begun fourth round outside Washington.

U.S. officials had foreshadowed that this week-long round would see the most contentious discussions open and that is coming to fruition, with the American side levelling one demand deemed a non-starter – and preparing to deliver another one.

The just-released demand would create a so-called termination clause. It would end NAFTA after five years, unless its member countries explicitly opted to renew it. That proposal was delivered late Wednesday night, as Prime Minister Trudeau headed to Mexico to meet with Mexican President Enrique Pena Nieto before the fourth round of talks.

That comes after the U.S. proposed far stricter Buy American rules at the last negotiating round, and in the leadup to one of the most important proposals of the entire negotiation: on rules for auto parts, which could come as early as Friday.

“More contentious issues will be coming up very shortly,” U.S. Commerce Secretary Wilbur Ross said during a panel discussion this week at the Dentons law firm.

The other NAFTA countries say they’re legitimately baffled by where the U.S. is headed.

Sources say others are trying to figure out what this hardline approach signals from the U.S. – opening positions that will be flexible with some bargaining; hard demands; or a desire to poison the talks, let them collapse, and simply do away with NAFTA.

Newt Gingrich said this week he sees little appetite within the U.S. cabinet for the type of turmoil cancelling NAFTA might cause. He said Trump’s team is filled with wealthy pro-traders, who simply believe the U.S. needs tougher deals.

Ross himself said he doesn’t anticipate a NAFTA collapse, though he added a caveat: “We don’t hope it will (end), we don’t desire that it will, we don’t believe that it will, but it is at least a conceptual possibility.”

Canada and Mexico are vehemently opposed to the five-year termination idea, seeing it as a destabilizing investment-killer and an unacceptable red line. Canada’s ambassador to the U.S. has joked that if the same idea were used in marriage licenses, the divorce rate would skyrocket.

But Ross confirmed it as the U.S. position, and shrugged off the talk of red lines.

“Yes, that’s our proposal,” Ross said, adding dismissively: “Red lines, blue lines, green lines, purple lines – those are just colours in a rainbow… It’s a big, complicated negotiation and the key is having an overall package that works (at the end).”

WATCH: Canada’s top priorities in NAFTA negotiations

The next big scare could come Friday the 13th.

That’s when the group handling rules for auto parts meets for the first time in this round, and it’s expected the U.S. is preparing to level demands viewed as non-starters by Canada, Mexico, and the auto industry.

One report said the planned demand would require 85 per cent of a car’s parts to come from North America, and half of them to come from the U.S. The industry says many of these components simply aren’t made on the continent, and warns that if the rules get too onerous it might just stop working within NAFTA and start paying tariffs.

The demands being levelled cross several of the six so-called red lines laid out by Mexico’s Senate, which says it would refuse any deal that includes a termination clause, a U.S. auto content requirement, or the end of the Chapter 19 dispute-resolution system.

“We’re expecting some contentious proposals this week,” said the official, a non-American who was not authorized to speak publicly. “Having said that, no one should lose sight of the fact you have three teams of negotiators working to make progress on the deal and they are making progress.

“If there weren’t contentious proposals, it wouldn’t be a negotiation.”

American industry has begun sounding alarm bells about the potential damage if NAFTA dies. The U.S. Motor & Equipment Manufacturers Association released a study Thursday saying it could cost 25,000 to 50,000 U.S. jobs, and warned that too-stringent content rules could cost 24,000 jobs.

A team of Scotiabank economists agrees the auto sector is faring well under NAFTA. It points to data showing a surge in U.S. auto employment since the 2008-09 recession, with six per cent annual employment increases that are multiple times larger than growth in other manufacturing sectors. They say Ross relies on skewed numbers to paint an overly grim portrait, which underestimates the degree of U.S. content in North American cars.

But Ross shrugs off the industry’s complaints: “I think you’ll find the car companies will adapt themselves to it.”